CHATHAM -- Despite public fears about the national debt and unemployment, the nation's economic prognosis is sanguine, one local financial expert told Cape Cod business leaders last Thursday. But the state's economy continues to feel the effect of a population decline, she noted.

Maureen Kelliher, chief financial officer for Citizens Bank Investment ManagementServices, gave her analysis at the annual economic forecast breakfast, held by the Cape Cod Chamber of Commerce at Chatham Bars Inn. She said the nation is likely to experience the same kind of steady, sustainable economic growth in 2006 as it saw in 2005.

While state economic data are not yet available for 2005, Massachusetts is also experiencing steady economic performance. Between 2001 and 2003, the state lost more jobs than any other, a situation which turned around in 2004.

"But the population continues to decline, and that's a concern," Kelliher said. She noted a net out-migration of workers, linked to the high cost and low availability of housing, rising health care costs, and taxes, and said the economy cannot grow markedly without enough workers and consumers.

John O'Brien of Harwich, former CEO of the Cape Cod Chamber of Commerce, said Barnstable County continues to be economically well positioned.

"I think we're weathering the storm a little better than the [rest of the] state," he said. O'Brien said the public sector has finally seen the wisdom of investing in the tourism industry, instead of focusing entirely on technology and light industry.

"Tourism, globally, is the number one industry," Kelliher said. The Cape is at an advantage because it is attractive to retiring Baby Boomers, who come to the region at the peak of their lifetime earnings and savings. From around the world and particularly Europe, there is an influx of new tourists, including visitors from Russia and China.

Massachusetts also continues to see a robust housing market because of the limited supply of new homes, and in communities around the state, zoning restrictions are being loosened to allow more multi-family housing developments, Kelliher said. Without that, she observed, "you just don't have enough lower-cost homes to be able to attract some of the support workers you need to sustain some of the industries." The top end of the housing market has come off, "but other than that, the traditional housing market is doing extremely well," Kelliher said.

Massachusetts also continues to profit from historically low interest rates and a well-educated workforce, however, and the state remains a welcoming place for technology and niche manufacturing, according to Kelliher.

When it comes to the lucrative retirement sector of the economy, Cape Cod and the rest of Massachusetts is competing with other retirement destinations like Florida and Nevada, which have tax strategies that benefit people who are on fixed incomes.

"They've incentivized retirees to stay with them" by not taxing pensions, and even waiving state or sales taxes, Kelliher said.

Overall, the U.S. economy grew 3.1 percent in 2005, down slightly from 3.8 percent in 2004, propelled by better- than-expected numbers for the housing and retail markets. After the economic downturn of 1999 and 2000, "companies weren't really spending," Kelliher noted. They spent time "retooling their balance sheets," saving some money, and are now hiring new workers and increasing capital spending, she said.

In the last year, job growth has been strong and incomes are up, and the gross domestic product continued slow growth. Consumer sentiment, a measure of workers' perceived job security and job opportunities, fell in 2001 and 2002, but recovered somewhat in 2003 and 2004.

"Although oil is a tax on this economy, it's not a net negative, globally," Kelliher said. "Somebody wins and somebody loses."

With continued safeguards against inflation, the U.S. economy should continue moderate, steady growth in 2006, the CFO advised. The Federal Reserve Board is likely to raise interest rates two more times, probably topping out at around 5.5 percent, slightly higher than the Fed's prediction. Kelliher said most economists believe that the new Fed chairman, Ben Bernanke, will be at least as prudent a leader as his predecessor, Alan Greenspan.